Greenness in commodity trading

Sustainable commodities as the new normal?

Commodities, ranging from precious metals to oil and agricultural products form a central part of our society and economy. As such, they play a key role in the sustainable transition, which explains the growing importance of incorporating ESG in commodity trading.

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Commodities’ dual role in the green transition

On the one hand, many commodities are driving the green transition, which transfers into an increasing demand for commodities that promote clean energy, like green lithium, as well as sustainably sourced and ethically produced commodities such as responsible cocoa or palm oil.

On the other hand, commodities can also be negatively affected by the green transition through physical risks like climate-related extreme weather events destroying agricultural products and a decreasing demand for commodities which do not support or are negatively affected by the green transition such as fossil fuels. Furthermore, ESG breaches result in financial losses, reputational damage and litigation costs.

Regulatory and market pressure

There are increasing calls from the regulators and the industry for more ESG integration in the commodity business.

  • The trend for heavier regulation of transactions for commodity derivatives and emissions allowance is expected to continue in the upcoming years, increasingly under consideration of ESG.
  • Regulators and supervisors around the world are looking into the new challenges of the commodity trading market in relation to ESG.
  • The biggest commodity players commit to more transparency on sustainability matters such as TCFD reporting and increasingly set ambitious targets towards decarbonisation.
  • Industry-specific ESG standards and certifications for commodity producers are gaining in importance.
  • Commodity stock exchanges look into ways to drive ESG innovation.

Clearly, the financial industry also has its role to play in the sustainable transition. As financial institutions are facing a true green regulatory tsunami, they’re passing their own obligations to other stakeholders in the commodity trading market, which will have tremendous implications for the crucial funding for commodity trading. 

Commodity trading and the EU taxonomy

One of the core regulatory developments around sustainable finance is the EU taxonomy. It has implications on various areas around commodities and commodity trading such as:

  • The classification of economic activities around commodities (e.g. sourcing and production, transportation)
  • Mandatory taxonomy disclosure obligations for large commodity producers and commodity trading companies (in scope of NFRD / CSRD)
  • Implications for funding and trading (e.g. taxonomy-aligned loan KPIs).

Moreover, the taxonomy plays a key role in the greening of the commodity business.

The four steps in greening your commodity business

Without a doubt, the taxonomy will shape the commodity business and at the same time can be a powerful tool for greening your commodity business. A successful implementation comprises the following four steps:

  • Classifying green commodities using the EU taxonomy and setting quantitative thresholds, as well as distinguishing between green and brown commodities.
  • Green funding and trading shaped by ESG and taxonomy-linked criteria.
  • Integrating sustainability risk (and in particular climate risk) in commodity trading.
  • Providing transparency on ESG topics, sustainability commitments and taxonomy alignment.

«Considering the strong interdependencies between commodities and the green transition, there is no way around thoroughly incorporating ESG in commodity trading.»

Antonios Koumbarakis

Dr Antonios Koumbarakis
Sustainability & Strategic Regulatory Leader, PwC Switzerland

How we can support you

We help you set up a sound roadmap to greening your commodity business, including:

Strategic impact assessment – Understand how your business is affected by ESG…

Regulatory impact assessment – …and by related regulatory developments

Taxonomy screening, alignment and classification of commodities and trading activities

Integration of sustainability risks on commodity trading into risk management

Definition of sustainability targets and commitments in relation to commodity trading

Disclosures on ESG matters and taxonomy-aligned activities.

Contact us

Dr. Antonios  Koumbarakis

Dr. Antonios Koumbarakis

Partner, Sustainability & Strategic Regulatory, PwC Switzerland

Tel: +41 58 792 45 23

Christophe Bourgoin

Christophe Bourgoin

Partner, Investor Reporting and Sustainability Platform Leader, PwC Switzerland

Tel: +41 58 792 25 37

Marc Lehmann

Marc Lehmann

Operational Excellence & ESG Transformation Leader, PwC Switzerland

Tel: +41 58 792 26 50

Martin Liebi

Martin Liebi

Director, Legal, PwC Switzerland

Tel: +41 58 792 28 86

Dr. Astrid Offenhammer

Dr. Astrid Offenhammer

Director, Sustainability & Strategic Regulatory, PwC Switzerland

Tel: +41 78 696 32 11

Sofia Jaccard

Sofia Jaccard

Senior manager, Sustainability & Strategic Regulatory, PwC Switzerland

Tel: +41 58 792 26 87

Erik Steiger

Erik Steiger

Partner, Sustainability Tax & Legal Leader, PwC Switzerland

Tel: +41 58 792 59 40

Juliane Welz

Juliane Welz

Director, Insurance Transformation, PwC Switzerland

Tel: +41 58 792 19 13